India defends its IKEA rebuff

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Last Updated: Sat, Nov 24, 2012 11:32 hrs

MUMBAI (Reuters) - A top government official on Saturday defended India's decision to permit IKEA to sell only furniture products in the country, curtailing the Swedish retailer's investment plans in a fast growing consumer market.

The Foreign Investment Promotion Board (FIPB), which clears foreign investment proposals in the country, approved on Tuesday IKEA's 1.5 billion euros investment plan on conditions that the retailer would operate only in its core business.

"It's a single brand approval. So they can sell those items which they can brand," Arvind Mayaram, economic affairs secretary at the finance ministry and one of the members of the FIPB, told reporters.

"Whatever they can brand, they have been permitted to."

The cabinet needs to approve the decision of the FIPB before it comes into effect.

On Friday, local newspapers reported that IKEA had been forbidden from selling any food or drinks and other items including textile products and office supplies.

It is not yet clear whether product restrictions will delay or alter IKEA's investment plans in the country. The retailer has said it will review the details of the approval once they are made public.

The government has presented IKEA's planned entry as a sign that foreign investors have kept faith with Asia's third-largest economy, at a time when growth has declined and political protests have erupted over expansion by foreign firms.

India has thrown open its doors to foreign retailers this year, liberalising investment rules to allow in global supermarket chains and as well as lifting an investment cap on single-brand retailers such as IKEA.

But the rule changes have provoked a furious backlash from some political parties and domestic retailers, a reaction which threatens to derail a package of pro-market reforms aimed at reviving growth.

(Reporting by Kaustubh Kulkarni; Writing by Rajesh Kumar Singh, editing by William Hardy)